Business and Society: Defining the ’Social License’

This article, by IHRB Executive Director John Morrison, was originally published in The Guardian on 29 September 2014.

Business leaders, politicians and civil society set a common direction towards new global agreements on climate change at the UN climate conference in New York last week . Next year will also see a new set of global goals to meet the world’s most pressing development and sustainability problems.

Direct involvement of the private sector is no longer debated. It is now a question of how much and some studies suggest that at least $1tn of private investment is needed.

It remains unclear how these international public-private-partnerships (PPP) will be structured; the UN itself has no standard template. It is clearer that communities around the world will only accept such changes to the social contract if non-state actors are seen to be legitimate, not just in the eyes of elites but also by populations more generally.

Inequality is increasing in most countries and the role of non-state actors themselves is increasingly questioned – for example in the form of demands for greater corporate accountability.

When it comes to business, how should we understand whether companies have sufficient social legitimacy to take on joint responsibility for delivering essential goods: from health to clean drinking water, from ending gender discrimination to fighting corruption?

Traditional approaches to corporate social responsibility (CSR) do not answer these questions sufficiently. Sir Geoffrey Chandler’s critiques of CSR formulated over ten years ago still stand. CSR is often too peripheral to the core business model, too much of a side-show, too far from providing real ‘shared value’ (as Porter and Kramer went on to argue).

Even more fundamental are the false dichotomies that CSR has set up. There’s the voluntary versus mandatory debate, companies that are ‘good at CSR’ are valued regardless of the impact of their core operations, and the “self-declaratory” nature of much of CSR that Professor John Ruggie and others have challenged.

If we are to be serious about international PPPs in relation to global sustainability goals, then we need to think more profoundly about how business relates to the pre-existing social contracts that bind societies and legitimise those that represent us at the international, national or local level. If defined in this way, the ‘social licence’ is a much more useful concept than CSR, as the social licence requires any business to ensure its activities respect the rights of all of those in any community.

Social licence can never be self-awarded, it requires that an activity enjoys sufficient trust and legitimacy, and has the consent of those affected. Business cannot determine how much prevention or mitigation it should engage in to meet environmental or social risk – stakeholders and rights-holders have to be involved for thresholds of due diligence to be legitimate (sometimes even if these are clearly determined in law).

There are many examples of where social license has been lost, from Shell in the Niger Delta, BP in the Gulf of Mexico, dam building in Myanmar to the GMO debate in Europe a generation ago.

It is much harder to point at examples where the social license remains robust as the symptoms are far subtler – but there are examples of where activities have enjoyed strong social legitimacy.

Between 2003 and 2007, Gap engaged in multi-stakeholder dialogue about how to reduce the risk of labour abuse in its supply chain, and was transparent about the mitigation measures it had taken. Its activities enjoyed some social licence. When child labour was alleged at an Indian supplier in 2007, the company was defended by a range of stakeholders for having undertaken a reasonable standard of due diligence.

Social license does not allow companies to get away with child labour, quite the opposite. But when a company is setting new benchmarks on mitigation and transparency to lower the risk of child labour, it seems that sometimes trade unions and others are willing to say this publicly when something bad happens. Nor will stakeholders defend companies activities beyond a specific context. For example trade unions have expressed their disappointment in the position Gap has taken post the Rana Plaza disaster in Bangladesh.

Another example is that of the Kenyan mobile phone operator, Safaricom, whose network – along with others – was inadvertently used to spread hate speech by including bulk text messages after the 2007 elections violence which led to over 1,000 deaths mainly in the Rift Valley. Safaricom worked hard in the period before the next election in 2012 to share the precautions it was taking to limit hate speech whilst protecting freedom of expression – including the involvement of third party observers. Safaricom built up strong social licence at a time of national transition and very significant social challenges.

Whilst the social licence cannot be controlled directly by companies (that is part of its attraction) there are a number of factors that can be managed and these boil down to issues such as transparency, accountability, clarity about benefits, remedies and adequate due diligence. Consent is also an essential component. It is a mistake for any company to proceed on any activity without securing adequate social permissions.

As we move towards final agreement on the 2015 UN Sustainability Goals, social licence is a concept that will re-occur because the social contract itself is being questioned. If PPPs do represent a new form of social contract, one in which business is part of the contract itself, then we need the accountability and governance tools to deal with this new reality or risk the backlash.